Daily Market Update

Sterling Rallies on GDP; Aussie Down on Inflation

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The U.S. dollar held familiar ranges against most of its majors overnight, save the British pound and Australian dollar. The EUR/USD cross is in wait-and-see mode ahead of the European Central Bank’s decision tomorrow.

USD

The U.S. dollar held familiar ranges against most of its majors overnight, save the British pound and Australian dollar. The EUR/USD cross is in wait-and-see mode ahead of the European Central Bank’s decision tomorrow. It is likely that the central bank will adjust its monetary policy but the question remains by how much and over what time period. As a result, the pair is stuck in its tightest daily range since January of 2016.

Traders continue to keep a close eye on who will become the next chairman of the Federal Reserve. At a meeting with Senate Republicans, President Trump took an informal poll of senators. Economists John Taylor seems to have been the favorite. Taylor is famous for the “Taylor Rule” which he developed and argues should be used to dictate interest rates. Under the rule, U.S. interest rates would be at 2.5%, much more hawkish than our current policy. In short, a Taylor pick would be good for the U.S. dollar, but not necessarily for equity markets.

The U.S. dollar has found some support this morning after Durable Goods orders impressed. Orders for goods meant to last three years or more rose 2.2% in September, beating estimates of a 1.0% gain. When volatile transportation orders are taken out, the “core” print also beat expectations. Later this morning, new home sales are expected to show a decline of 1.1% in September.

AUD

The Australian dollar took a dive overnight following a weak inflation number. The Australian consumer price index rose only 1.8% for the year, lower than the 2.0% expected. In the aftermath, the Aussie sunk nearly a full percent and traded to its weakest level since July 13th. The low inflation reading has increased the likelihood that the Reserve Bank of Australia will push pack any interest rate hikes past 2018.

GBP

The British pound found a spark after a report showed that the U.K. economy expanded more than forecast in the third quarter. According to the U.K.’s statistics office, gross domestic product rose 0.4% from the three months earlier, beating expectations of 0.3% growth. Following the strong data, a November rate hike is all but a sure thing. While we expect the Bank of England to raise rates next month, we expect a so-called “dovish hike,” which means they will hike once, but then go back to a perpetual hold.

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